The chancellor has announced he will extend the stamp duty holiday by three months, which is likely a relief to many rushing to finalise buying a house.
The stamp duty break was one of the many tax relaxations the government introduced at the start of the Covid pandemic to keep the economy going.
While many areas of the economy have been shut down for almost a year, the property market has been allowed to function since July which has led to a rise in house sales.
When was the stamp duty break introduced?
The Treasury announced last year that it would temporarily raise the stamp duty threshold from £125,000 to £500,000 for property sales in England and Northern Ireland, effectively creating a stamp duty break for all but the most expensive houses.
Stamp duty is a tax on property purchases with people paying between £125,001 to £250,000 for a house required to also pay a 2% tax, which increases as the price goes up.
First-time buyers are exempt from stamp duty.
Will be it be extended?
It was due to end on March 31 and many people were scrambling to complete their transactions before the deadline, worried that if they did not, they could be left with up to a £15,000 tax bill.
Those with concerns will be pleased to know the holiday has been extended to the end of June.It means the the nil rate band will be £500,000 til the end of June, then it will go to £250,000, double its standard level, until the end of September.Was the break a good move?
A recent report by the right-leaning Centre for Policy Studies (CPS) said the tax break had increased house sales to their highest level since before the 2007 financial crisis.
Some 121,640 residential property transactions were recorded in Januaray 2021 – marking a 24.1% increase on January 2020.
Data shows that after an initial decline in sales between April and June 2020, the number of transactions increased from 132,090 in the second quarter to 225,870 in the third quarter and 316,300 by the end of quarter four – the highest level since 2007.
The think tank’s research shows that stamp duty revenues actually rose by 27% in Q3 compared to Q2, from £1.1bn to £1.35bn, and suggests they will rise again in Q4 given the continued increase in transactions.
This means more and more people were buying houses that cost over £500,000, enough to counter the complete lack of stamp duty income from properties below that value.
Halifax calculated that the proportion of home-movers paying stamp duty on transactions fell from more than nine in 10 (93%) in the six months to June 2020 to just over a quarter (26%) in the six months to December.The average house value has risen by a record amount during the pandemic to £252,000.
House prices have jumped as a result of people rushing to avoid stamp duty.
In the first half of 2020, the average house price for home-movers was £373,537, Halifax found.
But, in the last six months of the year, the average property price was £57,790 higher, at £431,327 – an increase which equates to around five times the amount saved on stamp duty.
The sharp rise in house prices can be both positive and negative for different parts of society.
It can make property an increasingly valuable investment but also make it harder to get on the housing ladder.
The CPS is calling on the Government to either permanently increase the stamp duty threshold to £500,000 – at a cost of £3 billion – or abolish it altogether.
Jethro Elsden, CPS data analyst and the report’s author, said scrapping the holiday would be a “sledgehammer blow to the housing market”.
Bridget Phillipson, Labour’s shadow chief secretary to the Treasury, described the reported plans for a stamp duty extension as “another tax giveaway to second homeowners”.
“These are the wrong priorities in the middle of the worst economic crisis of any major economy,” she said.
“The Chancellor should be taking action to protect family finances and secure our economy, not hitting them with tax rises while cutting them for landlords.”
Renters have been among the hardest hit in the pandemic and with house prices being driven up by a stamp duty break, which even in normal times if they were first-time buyers would not apply to them, makes the situation even harder.
At least half a million private renters are in arrears due to the economic impact of Covid-19, according to previous UK research from Citizens Advice.
Recently a campaign group made up of both landlords associations and homelessness charities called for more support for people struggling to pay their rent.